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New properties in Scotland to be exempt from business rates until one year after occupation

Business rates will not be charged on commercial properties in Scotland until one year after the property is occupied by its first tenant, the Scottish government has announced.14 Sep 2017

The so-called 'business growth accelerator' was one of the central recommendations of a review of business rates in Scotland, published at the end of last month. Finance secretary Derek Mackay has now committed to including the policy in the government's draft budget for 2018/19, with a view to introducing it for all newly-built properties on 1 April 2018.

Any rates increase due on newly-improved commercial properties would also be frozen for one year under the scheme.

Commercial property expert Paul Connolly of Pinsent Masons, the law firm behind Out-Law.com, described the announcement as a "significant and welcome" one for property developers.

"Speculative development across Scotland has long been impacted by business rates being automatically applied to newly constructed premises, regardless of occupation," he said.

"This announcement will now remove one of the key barriers to speculative development in Scotland, and also serve to assist new-build occupiers through the extension of the business rate freeze until the end of the first year of occupation. It creates a positive differentiator for the property sector in Scotland when dealing with other competitors in the UK for new development and inward investment," he said.

The government intends to implement the "vast majority" of the 30 recommendations made by the review, which was led by former RBS chair Ken Barclay. These include moving to three-yearly revaluations, which will be based on the property's rateable value one year before the revaluation takes effect; introducing a new 100% rates relief for day nurseries; and expanding the 'fresh start' relief scheme, to create a greater incentive to bring empty properties back into economic use.

Other recommendations, including empty property rates relief reform and the removal of automatic charity rates relief for local authority arms-length external organisations (ALEOs), independent schools and student accommodation, require "further consideration and engagement", Mackay said. He will publish implementation plans for each of these issues before the end of the year.

"The Barclay Review presented us with the opportunity to evaluate how we handle business rates and improve methods to make Scotland the most competitive place in the UK for businesses to invest and grow," Mackay said.

"These new measures will help stimulate the economy and create jobs, which is key to readdressing the inequality that still exists in our society as well as strengthening Scotland's business appeal and generating new growth avenues," he said.

Business rates are charged on most non-domestic premises including shops, offices, warehouses and factories. Under the current rules, properties are usually revalued for rates purposes once every five years, based on rental values at a 'tone date' two years before the date the revaluation takes effect.

The next revaluation is due to take place in 2022. After this revaluation, the Scottish government will move to three-yearly revaluations, based on a 'tone date' of one year before the date the revaluation takes effect. Mackay said that these changes would "help ensure that our ratings system is more flexible to the changing economic circumstances that businesses face", and reduce the potential for the "large shocks" which some businesses faced after this year's revaluation.

The 'fresh start' rates relief scheme available on long-term vacant properties will be expanded from 1 April 2018 to apply after the property has been empty for six months, rather than the current 12, Mackay announced. The rate of the relief will also be increased, from 50% to 100%, while the scheme will also be expanded to cover all types of commercial property, including industrial property.

The government intends to appoint an advisory group to develop some of the administrative reforms made by the review panel, including those in relation to standardised billing. The Scottish Assessors Association is also taking forward recommendations made by the review aimed at improving the service they provide. New civil penalties would replace the current criminal penalty for non-provision of information to assessors, while a 'general anti-avoidance rule' would be created to "future proof" the rates system against avoidance tactics that may emerge over time.

The Scottish government will consider whether to reduce the large business supplement to 1.3 pence, as recommended by the review, in future years "should it become affordable". It will not take forward recommendations to put farms on the valuation roll, and to charge rates on commercial agricultural processing.

Mackay also confirmed that the government intended to extend the 12.5% cap on rate increases for office premises in Aberdeen and Aberdeenshire and all but the very largest hospitality properties for a further year. It will also introduce a new 60% relief for hydro schemes from 1 April 2018, pending a planned review of plant and machinery valuation.

Planning law expert Craig Connal QC of Pinsent Masons said that while many of the announcements would make a positive difference to firms, the overall package "still leaves the general system untouched, with many businesses facing huge increases which are difficult to understand in times of financial pressure".

"It also continues the theme of major reform being too difficult," he said.